Prepare For Your Financial Winter in Times of Plenty

I was recently on a lengthy cross-state drive with a few family members that took us through miles and miles of farmland. Along the way, my brother in law asked “What do farmers do in winter?” Now, I’m no farming expert, but I always like to share my ideas as possible answers when a question is asked. I told him my guess would be that they live off of what they made in the summer and harvest season and perhaps relax a little. That question made me think about the summers and winters in our financial lives.

During the summer and harvest seasons is when farmers make most, if not all, of their money. (Again, I’m no farming expert – I’m just taking a guess). Being aware of what the seasonal change does for their crops however, they know not to spend all their bounty at one time because they will need some of that to sustain them through the winter until the next harvest. Aside from the changing of the seasons, farmers also know that crop supply and quality can vary from year to year, bringing abundance one year and possibly lack the next.

I believe we have similar patterns in our own finances. We have summers and winters and good years and bad years. There are times when have well paying jobs, we receive bonuses, we have extra opportunities to make money, the stock market does well, nothing breaks down and things look peachy. Then there are times when lay offs occur, a sickness in the family comes, a car (or 2) break down, prices go up all around and the stock market goes down. Whatever it is, chances are you’ve gone through something on both an up and down swing. The key to how you deal with the winters and bad years is what you do in the summers and good years.

When things are going well and money is abundant, what do you do with your money? Do you rejoice in the fact that you have so much and buy a bunch of things? Perhaps a new TV or a new car or the latest gadget? Irresponsible people tend to spend their abundance. Huge tax return? Let’s buy a home theatre system! A few months later when money is tight it’s usually “we don’t have enough money for…”

Responsible people know that even though times are good, bad times are ahead somewhere. It’s not being pessimistic – it’s being realistic. When money is abundant, these people make sure they have some stashed away for later. When that bonus comes they don’t blow it all on the latest flat screen TV, they make sure they have an emergency fund tucked away so that when something arises later, they will have the money to take care of it.

This is not to say that when you have excess money you shouldn’t spend it at all and it should all be hoarded away. What’s the point in working hard to make money if you can’t spend any of it? What it does mean is that you should have your priorities in order and save for the future first so you won’t starve in the winter seasons.

Last year after my husband and I paid off all our credit card debt, we found ourselves with a significant amount of money left over each month in our budget that we had been paying toward our credit cards. Instead of increasing our monthly spending, we kept our frugal habits and decided to build an emergency fund. Our goal was 3 months of living expenses by the end of 2007. We diligently socked away money into our fund, even though we wanted to spend it all.

In September we accomplished our goal and about that time my husband’s job position was cut and we lost about $500 a month in income. Was I ever glad that we funded our emergency account first. Now saving the next 3 months of expenses is our goal for 2008, but at the end of 2007 we spent a bit to reward ourselves for our diligence. Even with the drop in income we still had a bit leftover each month so we were able to buy new windows for our house, new tires for our car, a new laptop, new cell phones and Christmas presents for all our family. A lot of these items we’ve wanted to buy all year long, but waited until we had our goal met. (My poor husband has been using a cell phone that had white lines going across and blocking the top of his screen for quite a few months now)

The biggest cash fall for some people happens to be their tax refund at the beginning of each year. I’ve noticed that usually the more the tax refund is, the quicker it’s spent on stuff. I would encourage anyone who plans to receive a large tax refund and doesn’t have at least 3 months of living expenses in an emergency fund to save a minimum of half of that refund and put it in savings. I understand some people need baby steps and that’s why I said half. More would be better. I hope many people start the New Year off right by preparing for winter in the middle of their summer so they don’t starve later. And if you are in the middle of your winter right now and struggling to make it through, remember what this feels like and let that stress and anxiety motivate you to do the responsible thing when summer rolls around again.

4 thoughts on “Prepare For Your Financial Winter in Times of Plenty”

I am a farmer and yes you are correct in that farmers do relax some in the winter, in northern areas, but many individuals are on boards and committees and attend meetings. The winter can be consumed by attending update meetings on production,marketing, tax planning, year end reviews of finances, considerations for the upcoming year for crops and inputs and areas best served with the money available. Farming is a business and like any business there is a profit potential if proper planning is done and that plan, ie. cash flow projection and budget and marketing plan, is closely monitored throughout the year and disaster doesn’t strike, hopefully that is covered by crop insurance, farmers will turn a profit and be able to payoff debt and make some capital improvements as well as provide a decent living for a family. The grain markets are high but that is a problem for livestock producers for feed costs. Fuel and fertilizer and most other inputs are all higher than in the past so the next few years will need to be handled with caution to retain income for the lean years that tend to show up.